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Short-Term Insurance Act, 1998 (Act No. 53 of 1998)

Regulations

Regulations under the Short-term Insurance Act, 1998 (Act No. 53 of 1998)

Part 3 : Limitation on Assets (Section 30)

3.7 Option contracts

 

(1) For the purposes of regulation 3.2, an option contract shall be deemed to be the asset or kind of asset to which the option contract relates. The exposure in consequence of concluding an option contract shall be included in the calculation of the overall exposure to the particular asset or category of assets concerned and the assets of the kind specified in item 1, 2, 16(5)(d) or 18 of the Table to Schedule 1 shall be adjusted accordingly. The exposure arising from the use of an option contract resulting in a positive holding shall be added to the particular asset or category of assets while assets of the kind specified in item 1, 2, 16(5)(d) or 18 of the Table to Schedule 1 shall be reduced. The exposure arising from the use of an option contract resulting in a negative holding, shall be deducted from the particular asset or category of assets while assets of the kind specified in item 1, 2, 16(5)(d) or 18 of the Table to Schedule 1 shall be increased. A positive holding constitutes a call option bought (long call) and a put option sold (short put), and a negative holding constitutes a call option sold (short call) and a put option bought (long put).

 

(2) The balance of any margin shall be deemed to be an asset of the kinds specified in items 2 and 16(5)(b) of the Table to Schedule 1.

 

(3) For the purposes of this regulation "exposure" means the number of contracts x delta x the market value of the underlying asset or category of assets, where "delta" represents the change in the option contract premium associated with one percentage point move in the market price of the underlying asset.